How Are Good Procurement Strategy Decisions Made?
- By Charles Dominick
- September 1st, 2013
Procurement Strategy Do’s & Don’ts
When implementing or refining a procurement strategy, the decisions you make early on determine whether that strategy will succeed or fail.
DON’T think you know everything. DO seek to learn what you don’t know. Every organization has not-so-obvious opportunities for Procurement to add value. Search for these opportunities with an open mind and they will present themselves for further evaluation.
DON’T randomly try to save money. DO strategically select areas for cost reduction. “The key way to do this is really partnering with your finance staff, partnering with your CFO,” says Ravi Thakur, vice president of Services & Support for Coupa, a provider of cloud spend management solutions. “It’s working with them to understand what metrics drive their business such that you can go ahead and work with them to cut cost where it matters.”
DON’T “wing” a procurement strategy. DO base a procurement strategy on a business case with a clear return on investment (ROI). When administrators review budget requests, they will ask “Are you going to create a business plan for me that’s going to create revenue or cut costs?” according to Thakur. ROI is “the only reason people will invest in a strategy, a process, or software, [so] make the business case for hard dollar savings.”
DON’T assume that Procurement is prepared for a new strategy. DO prepare procurement employees for new roles. Communication and training are mandatory if different results are expected.
DON’T believe that your leadership is enough to drive change. DO get buy-in for your procurement transformation from senior administration.
“Make sure that the executive team is engaged” in procurement change management, advises Thakur. “Unless you get the buy-in from [your administrators] in order to go out and proactively talk about that change and make it a key initiative for the organization, it’s very difficult to get [internal customers] to go and follow a transformation.”
How Do You Get Procurement Strategies To Succeed?
DON’T think that policies are all you need for compliance. DO make compliance the easiest option for your internal customers. “If you go and look at what an employee does when they go home at night, they’re on Facebook, they’re on Google... they expect to use the same thing within their day-to-day job,” observes Thakur. “If they’re working on tools or systems that don’t offer the same types of flexibility or usability, they’re going to start avoiding using those tools” and may resort to easier processes that violate policies.
DON’T wait for savings opportunities to be revealed to you. DO leverage data to partner with other departments. Some procurement departments don’t start searching for ways to achieve cost savings until a requisition arrives. That’s too late for strategic procurement departments. “Look, you’re in procurement... you’re the quarterback of saving money and managing everything going through your supply chain,” explains Thakur. He goes on to suggest that you, as a procurement leader, should take the lead in working with all major business units because “you’re the only one within the [institution] that has visibility across all the spend, across what everyone’s doing. So, leverage that!”
DON’T assume that lower prices alone will increase profits. DO work to ensure that savings are kept. Once you’ve negotiated deals and put low-cost contracts in place, “are you working to make sure that you’re not just reallocating that money to a different group, but really cutting it from the bottom line?” asks Thakur. “Once you do those negotiations, and once you see the value that procurement’s offering, make sure the value is kept [and] simply not lost by reallocating funds” to different budgets.
This article originally appeared in the September 2013 issue of College Planning & Management.
Charles Dominick, SPSM, SPSM2, SPSM3, is the president and chief procurement officer of the Next Level Purchasing Association (www.NextLevelPuchasing.com), a leading provider of procurement training and certification. He is also the lead author of The Procurement Game Plan: Strategies & Techniques for Supply Management Professionals. Prior to founding the Next Level Purchasing Association, Charles managed procurement for three leading organizations, including the University of Pittsburgh.